• Cloakroom Confidential: How CFPB Still A Snake Pit of Crony Capitalism

    Insiders in Washington have found a way to game the system to cash in on working for the Consumer Financial Protection Bureau (CFPB) and to use government power to help allies and hurt competitors. Cronyism exists in every corner of the federal government.

    In Washington, I’ve learned that if there’s a surprisingly sophisticated campaign to take out a niche industry sector cloaked in liberal moralizing, there’s often a third party that stands to benefit from the campaign.
    Economist Bruce Yandle coined the term “Baptists and Bootleggers” to describe what on its face was an unusual coalition between religiously-inspired teetotalers and illegal moonshiners to push Prohibition through. The Baptists wanted to keep people from drinking, the bootleggers wanted to eliminate the competition.

    So when the CFPB, a government agency launched under President Obama that is designed not to be accountable to Congress, has the “payday lending” industry in its cross hairs, it’s not a total surprise to find the industry’s competitors are pushing the effort along.

    Still, the ties between the pending government regulations and a roughly $500 million credit union in North Carolina are startling. The “Self-Help” credit union’s former officials are buried in the CFPB bureaucracy like ticks, where they work to cut off what to many Americans is a crucial source of short-term financing.

    Make no mistake, the Self-Help Credit Union is directly competing with payday lenders for the exact same customers, offering short-term loans to replace a payday-type loan with one of theirs and slightly higher-value loans that the other lenders could someday expand their offerings to.
    But unlike their competition, the payday lenders don’t have their fomer associate director, Bill Bynum, as the chair of the CFPB’s consumer advisory board.
    Further, the Obama administration’s McCarthyite-like “Operation Choke Point,” which pressured banks to cut off financing to payday lenders, gun stores, tobacco outlets and other politically incorrect and yet completely legal entities, had Self-Help’s fingerprints all over it.

    For example, Mark Pearce, the former director of the “Center for Responsible Lending”, one of a cottage industry of Self-Help non-profits organized to target payday lenders, became a top official at the Federal Deposit Insurance Corporation (FDIC), where he worked to stop banks from working with payday lenders.

    FDIC officials also employed the classy tactic of mentioning payday lending in a list of industries that included “pornography,” purely to tarnish their image.

    When Congress started looking into Operation Choke Point, the campaign moved over to CFPB, which conveniently is largely immune from congressional oversight (its budget, for instance, does not go through the normal appropriations process).

    The CFPB recently released draft regulations that would regulate payday lenders almost entirely out of existence, for example by requiring underwriting standards similar to a home mortgage for small-value, short-term loans that are often needed in a pinch.

    Needing a loan to cover expenses in between paychecks isn’t an enviable place to be, financially-speaking. But back in the real world, away from the palatial headquarters CFPB director Richard Cordray spent hundreds of millions of taxpayer dollars constructing, most Americans live paycheck-to-paycheck. They shouldn’t be cut off from emergency funding just because some D.C. bureaucrats find it distasteful.

    The fact that the entire enterprise is being spun up by a bank that wants to swoop in on those customers makes the entire effort outrageous.

    It’s time to rein-in this rogue Obama administration operation and put the out of control CFPB back under Congress’ control. In the meantime, the CFPB should end its witch hunt and let the consumers it says it cares about decide whether these loans are in their best interest.

    Cloakroom Confidential

    Cloakroom Confidential was a longtime Capitol Hill staffer and insider who has contacts in the House and Senate at the highest levels.

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